At the beginning of your career, you may not know how to invest your money well. As an alternative to normal funds and banking products, you might consider social trading. This kind of trading allows you to invest your money by passively participating in the financial market.
There are many providers in the social trading market, which are often distinguished by their safety criteria. Some providers allow every possible account and others have very good criteria to sort out their traders.
eToro is one of the best known portals for social trading, as they use a strict selection procedure. In addition to this, the traders you copy are displayed according to their respective career levels.
In order to advance in career stage, a trader must meet a number of criteria – This provides more security for you. For the highest level a trader must fulfil various runs for at least 6 months.
You might think that profit is everything, but in social trading there are other considerations that should be kept in mind.
Profit is not everythingDo not just look at the profit of a trader. High profits often dazzle and lead to hasty decisions. Of course you want to
get the maximum profit from your investment, but you should also take other criteria into consideration.
First, your goal should be SMART:
This simple method can save you a lot of trouble, as not everyone has the same goals. Maybe you want to be a millionaire in 20 years, or you may simply want to earn 500 Euro a month through your investment.
An example: "I would like to earn a final capital of 25,000 Euro with social trading by December 31st of 2027 from a starting investment of 10,000 Euros. A drawdown of 20% is acceptable."
- Specific - Yes - You describe exactly how you want to achieve your goal
- Measurable - Yes - You have made exact specifications
- Attainable - Yes - Your starting capital and your goal fit together
- Realistic - Yes - You need about 10% return per year
- Time-related - Yes - You have set the date
The next step is to select your traders. You can now find exactly which traders are a right fit for your goals. Using your criteria, you can now filter your traders at eToro.
- Drawdown less than 20%
- Return over the past years greater than 10%
You can then receive a list of traders that match your criteria. Now you go into the narrow selection and think about which traders are interesting for you.
When you choose, be sure to diversify by not investing everything into a trader. Diversification can also help to mitigate large fluctuations in your portfolio. It is important for you to pay attention to the correlation.
You can diversify by choosing traders that are invested into different assets. For example, three traders that are invested in:
You can also diversify according to strategies. It is important to keep in mind that not every trader has the same strategy. For example, you may try to invest through:
- Dividends Shares
- Growth stocks
- Value shares
You can also make these diversifications in addition to your selected assets. If you decide on Forex and Stock, you can still choose to diversify further into sub-categories. All of these options will help you to create a portfolio that best suits your needs.
In investing, it is unavoidable that some effort is necessary – After all, it's about your money! In social trading there are many things that must be taken into account, which we help to explain by way of this course:
Social Trading – More than a substitute for the investment fund
What if I don't have 10,000 Euros?
Many people underestimate the cost average effect. You can also start with smaller amounts of capital by depositing regularly into your account. For example, suppose you pay 100 Euro each month and invest the money into your traders. This would mean that you can reach your goal in our previous example from a starting capital of only 3,000 Euros.
While Social trading holds many opportunities, it also requires some research. Just as you should not blindly invest in a bank product, you also have to invest some time into making the right social trading investments.
In the end you should be well advised. Hopefully we have given you some good advice, and that you are now ready to begin.
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